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Questions for the banking regulators

Nigerian Deposit Insurance Corporation (NDIC)
Nigerian Deposit Insurance Corporation (NDIC)

I have been hoarding some nagging questions to ask our banking regulators for some time now. Fortunately, I found myself one of those invited by the Nigerian Deposit Insurance Corporation (NDIC) to attend a forum for selected group of editors in the print and electronic media. The forum held on Tuesday last week in the gorgeous Legend Hotel within the vicinity of the Murtala Mohammed Airport, Ikeja, Lagos.

Glancing at the topics to be covered that day, at the forum, I knew that this was an opportunity to get answers to my nagging questions. We soon settled to an engaging interaction. NDIC is renowned for its high quality staff and I had no misgivings that we would have an interesting day of stimulating discussions.

I had written a piece, When the Skies Fell on Sky Bank, published on this page in October in the aftermath of the fall of Skye Bank and the emergence of the Polaris Bank as its replacement. One of the perennial questions that readers threw at me was how Polaris bank emerged literally overnight to take over the asset and liabilities of Skye Bank that seemed to have been killed simultaneously. It looked too much like abracadabra and I was not surprised that this issue came up at many stages of the forum. I guess many Nigerians used to the intricacies of registering a company with Corporate Affairs Commission (CAC) have found it difficult to comprehend how Polaris emerged overnight. The Polaris is a bridge bank that has taken over a dead one with a view to safe guarding depositors money and avoiding systemic run on the overall banking system. The bridge bank also conserves jobs in the industry and inevitably prepares the bank taken over for sale.

The indefatigable NDIC Managing Director, Umaru Ibrahim, has always been on the road explaining away the reasons a for bridge bank, and also why when it debuts, it had to be done in that seemingly cloak and dagger manner. Just as society prepares us for life as well as death, the NDIC contributes its quota in the sustenance of banks when they are in operation by a consistent on and offsite examination which it conducts with the Central Bank of Nigeria (CBN). Simultaneously it also prepares for the day banks falter and die. One of the measures the NIDC always take was to have one or two dummy companies duly registered with CAC ready to come to life when needed.

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To effectively take over a dead bank it needed to be done overnight, to avoid a run which anxious depositors would definitely do. Overnight the defunct bank is liquidated and Lo! the new one comes to life. The name of the new bank replaces the old, wherever. It is a massive operation that takes place nationwide and at the same time. The next morning when a customer makes a routine visit to his bank, he would notice the new name with apprehension, but would be relieved to discover that nothing else had changed. All the staff he was familiar with in the banking hall would be there and he would transact business and leave without any fuss. That in effect is what Bridge Bank does and NDIC had done it a number of times with total success. Readers might recall that when Afri Bank failed with all its well spread number of branches spread across the country, the NDIC was able to conduct the takeover exercise in a seamless manner overnight to transmute it into Mainstreet Bank. So also was the creation of Keystone Bank which rose from the ashes of Bank PHB.

But there are heavy costs to the nation involved in these clandestine exercises as in all the cases government had to sink plenty of funds to shore up the new entities. In the Skye/Polaris saga, government had to bring out N700b to effectively keep the new entity afloat till a buyer makes a move. The question that arose, inevitably, was what sanctions had government taken on those perceived to have brought Skye Bank to these dire straits?

In fact, readers would recall that Skye Bank was brought to its knees by the fat cats that owned it who went about in a frenzy dashing themselves and their relations huge unregulated loans. The result was an insolvent bank that for long relied on the CBN’s generosity at its daily lending window. This respite could not go on forever, and at a point CBN had to pull out the plug. The most interesting part of the story is that those fat cats that run the bank aground are still roaming free conducting other businesses with presumably monies carted away from the defunct bank. Anyway Skye Bank is not even an isolated case. A number of the directors of other failed banks taken over by the NDIC are still to see their day in court.

We also very familiar with the ding-dong that has become the Savannah Bank matter. Savannah Bank closed shop in 2002 with billions of depositors’ monies when its licence was withdrawn by the CBN and assets taken over by NDIC. Savannah Bank owners defiantly went to litigation, lost at the lower court and surprisingly got a favourable judgement at the Court of Appeal in 2009. Unfortunately for Savannah Bank by 2009 the capital base of banks had been raised to N25billion and since then they are said to be grappling with how to open shop. And the losers in all these are the hapless depositors whose monies are trapped in the bank. The worst part is that the value of the physical assets of the bank are fast deteriorating and would have depreciated so much that they would not be useful when issues of payment to depositors arises.

The explanation to this imbroglio would point to the laws governing the regulators and their roles in getting relief for depositors from rapacious bank directors. It is these inadequacies in the laws that desperate directors on the run, exploit in courts to avoid getting their just deserts. Good enough, the NDIC has never rested on its oars. At every turn when their laws were deemed inadequate due, perhaps, to the dynamic nature of the banking environment, they go back to the National Assembly for a review.

It was in the new circumstances that the NDIC approached the 7th Assembly for amendment of the NDIC Act No 16 of 2006. The matter continued in the 8th Assembly and in fact has passed through the First Reading in the Upper House in 2017. The proposed amendments would give NDIC sufficient powers to strengthen its supervisory capabilities and in particular address its challenges in areas of liquidation of insured financial institutions. And hopefully when the bill is passed, the NDIC would have sufficient claws to clamp on owners of banks who wilfully drove their banks down the insolvency road.

Many of such topics came up for discussions and further interrogations. The issue of financial inclusion and its long term effects on a balanced economy, cybercrimes and digital banking were all thrashed out. I have always been keenly interested in the issue of virtual currency which readers would recall had captured the imagination of many Nigerians in the last few years. Here I refer to Bitcoins and blockchains, cryptocurrencies that surreptitiously entered our financial space and, as I understand, were heavily patronized by a segment of the investing public. It is a world-wide phenomenon and was even touted as a currency that could replace the existing traditional currencies. It is an entirely new thing that even those of us who have a nodding acquaintance with economics are at loss. I shall refer to these matters in the few weeks ahead. Keep a date with this page.

 

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